Flood of US CEO Changes Signals Culture Shift

Jan. 23, 2014 - 09:25AM
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Raytheon CEO Bill Swanson has announced he is retiring this year. ()

WASHINGTON — With several senior US defense industry leaders announcing their departures in the first half of January, a generational shift is occurring right as companies hunker down for the ongoing defense spending down cycle.

On Jan. 15, Raytheon announced that Bill Swanson, the iconic CEO who helmed the company for more than a decade, will step down this year. Only the week before, Sean O’Keefe, head of what used to be called EADS North America and now known as Airbus Group Inc., announced his departure, and Linda Hudson of BAE Systems Inc., who had announced her retirement last year, named a successor. Both O’Keefe and Hudson ran the North American arms of their European-based firms.

In addition to the early 2014 news, 2013 saw new heads at Lockheed Martin and General Dynamics.

That’s an enormous amount of upheaval in a small industry, although it comes as an increasing number of senior leaders in Washington announce retirements as well.

“Over on the political side, we see a lot of congressmen deciding not to run for re-election, with a lot of them saying that Washington has just become too problematic,” said James Hasik, a senior fellow at the Atlantic Council. “We’re not seeing that from executives.”

Part of that may be because executives don’t want to destabilize their companies’ stock prices with gloomy predictions, jeopardizing their own stock options in the process. It’s possible that managing a defense company in the cut-and-shrink environment after years of guiding contractors during record budgets isn’t appealing.

But whatever the reason, the new generation of executives coming into power has different experiences from their predecessors.

“Some of these incoming executives barely remember what it was like during the Cold War,” said Loren Thompson, an industry consultant and analyst at the Lexington Institute. “The Cold War generation took the Pentagon’s demand for granted because the threat was constant. This new generation doesn’t take that for granted. This new generation is much more focused on careful financial management. They understand that you can’t count on the Pentagon and have to make your own profit.”

The fact that industry leaders are of a post-war generation matches with the transitions that have occurred at the Pentagon, where officers increasingly derive most of their experience from the post-Cold War era.

“We’ve got a whole generation of people in the military, where the Cold War is ancient history to them,” Hasik said. “The Cold War is very much dead for people under the age of 45.”

For industry, transitions in leadership have at times signaled shifts in philosophy. Until the late ’80s, few companies were led by executives not from the realm of engineering, and those who were received ridicule.

“People at Lockheed and other firms used to deride McDonnell Douglas that their senior leadership wasn’t composed of engineers,” Hasik said.

But in the last 30 years that has changed, with executives more frequently coming from strategic planning and financial backgrounds.

The turnover the industry is seeing now doesn’t yet have an obvious narrative, a clear new epoch. “A lot of the jobs may be turning over, but they aren’t turning over to different kinds of people,” Hasik said.

But with the departures of Hudson, O’Keefe and Swanson, few long-tenured and outspoken executives remain. Swanson was one of the first executives to voice concern that the impact of the sequester was being overplayed by some defense advocates, a prediction that has been borne out by steady returns and remarkable program wins for Raytheon. O’Keefe and Hudson also long served as measured voices advocating for prudent defense fiscal policy.

Once the transitions are complete, of the predominantly defense-focused top American companies, only L-3 Communications will have a CEO who has served since before 2010 — Michael Strianese. Strianese also chairs the Aerospace Industries Association’s board.

Thompson said the outgoing CEOs represented a shift in executive thinking, a move away from some of the self-aggrandizing big personalities that used to rule the roost.

“People like Swanson and [former Lockheed Martin CEO] Bob Stevens were much more focused on their people, their workforce, than an earlier generation that was focused on their own egos,” he said.